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Instances of underpayment by organisations, ranging from small businesses to major corporations, persistently emerge, impacting both employees and overall business operations. Employers must establish rigorous checks and robust processes to ensure compliance and promptly identify any discrepancies.
The CBA Case
A recent Federal Court of Australia case serves as a stark reminder of these risks. The court imposed a record $10.34 million in penalties (various serious contraventions) under the Fair Work Act 2009 (Cth) to two related entities Commonwealth Bank of Australia (CBA) and its subsidiary, Commonwealth Securities Limited (CommSec), for underpaying entitlements to approximately 7,400 employees between October 2015 and January 2021. This case highlights the importance of payroll integrity and the necessity for proactive measures to prevent such underpayments.
How did they get it so wrong? It seems one of the biggest contributing factors was paying salaries to award-covered employees and not having appropriate methods for checking the hours worked and any other entitlements which might have applied from time to time. When employees work more hours than their salary covers, the value of the unpaid entitlements quickly snowball. In CBA’s case, the backpayments owed to employees totalled over $16 million, which was in addition to the fine issued.
News reports indicate that key stakeholders responsible for compliance, including HR and payroll team members and other leaders were aware of the issues but did not take action to rectify them (that is, pay employees what they were legally entitled to, and prevent the issues spreading further).
Is It Wage Theft?
Wage theft is quite simply knowingly not paying employees what they are entitled to. It is illegal in Victoria and Queensland, and the Australian Government has introduced legislation from 1 January 2025 will criminalize intentional wage theft and non-payment of superannuation.
Employers must urgently educate themselves on wage theft, clarify legal obligations, and implement proactive measures to ensure fair and lawful payment practices in their workplaces, Quick Guide to Understanding Wage Theft and Underpayments.
While the case for CBA occurred prior to the introduction of jail time for international wage theft, our view is that if it had have occurred on or after 1 January 2025 (when the new legislation applies), it would fit squarely in the jurisdiction of intentional wage theft for multiple employees in HR, Payroll and leadership.
Is your business willing to take that risk?
Are You at Risk?
Paying Flat Rates: Ensuring Compliance
Flat rate carry very similar risks to what went wrong in the CBA case. Usually because work hours and different shift types are not monitored or re-calculated, and there is an assumption (or lack of understanding) that the flat rate is sufficient.
If you are paying your employees flat rates, it’s essential to ensure they’re better off overall (BOOT Test) by covering all entitlements from their Award or Agreement you don’t pay separately. Compliance can me simplified with expert advice, particularly for roles with varying work hours. All flat rates must be documented in an individual flexibility agreement (IFA) as described in the in the Award or Agreement applicable to the employee (usually clause 5 in an Award).
Important: Most Awards will not allow you to enter into an IFA until the employee has commenced employment with your business. Be sure to check the flexibility clause of your Award or Agreement to find out what applies to your circumstances. Find out more – Quick Guide to Flat Rates.
Paying Salaries: Meeting Award Requirements
While paying an annual salary is generally acceptable, it must be calculated, documented, and audited in accordance with Award provisions. For instance, the Clerks – Private Sector Award 2020 specifies detailed requirements, including regular assessment of work hours to ensure they align with the salary. Any extra hours worked should be treated as overtime if they exceed the agreed-upon hours for the pay period.
There are many different requirements for paying salaries, which vary between awards. Employers should thoroughly review the annualised wage provisions in their Awards and ensure compliance with specific requirements. It’s important to note that not all Awards include provisions for annual salaries or annualised wages, so understanding the flexibility clauses is crucial and may require documenting in an IFA.
Remember: Every year, usually July, award rates and some allowances increase. You can read about the latest increases this year here.
Are Your HR & Payroll Teams Trained?
An easy way to mitigate risk in this space is to ensure your team members are appropriately trained and fully understand the payroll landscape in your business. Edwards HR offers public workshops across many HR and payroll topics, and can customise cost-effective training specific to your businesses needs. Contact us today to find out how you can mitigate risk through training.
Another quick way to understand your obligations is to read Edwards HR’s Quick Guide to Understanding Wage Theft and Underpayments.
In Closing
The CBA case reiterates the importance of ongoing wage compliance efforts for employers of all sizes and industries. With continuous changes in wage compliance regulations, staying proactive and vigilant is imperative to avoid potential consequences.
We are here to help!
The team at Edwards HR advises every week on award coverage, minimum entitlements, calculating salaries and flat rates, drafting employment contracts and Individual Flexible Arrangements (IFAs) against various award provisions.
We also complete many projects relating to auditing, payroll system setups and testing, and remuneration benchmarking. If you would like to chat with our team about wage compliance, auditing and commercial protection initiatives that are both cost effective and tailored specifically to your business, please contact our team on 07 3568 0866.
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For more guidance about this update, or to find out how Edwards HR can support your business, contact our team today on 07 3568 0866.
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